Time for Mall Owners to Help with Rent Cuts

FF Fashion

"major mall earners were not convinced that occupancy costs were too high" This is absolutely ridiculous!

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Wed, May 20, 2009
The Business Times
By ARTHUR SIM

IF ONE accepts that FJ Benjamin's latest financial numbers are a fair reflection of what is happening in the retail industry, then the time might be right for mall owners to cut rents, if only to ensure their own survival.

FJ Benjamin saw its turnover shrink significantly in the quarter ended March 31. It registered a net loss (attributed to lower sales and foreign exchange losses), even after struggling with cost-cutting measures.

Reporting its quarterly financial results last Monday, it said gross margins slipped to 38 per cent from 40 per cent due mainly to higher promotional activities (such as sales).

Staff costs dipped 9 per cent to $9.5 million, and other operating expenses fell 38 per cent to $4.6 million.

Still it was not enough to displace the 21 per cent fall in turnover to $69.1 million, down from $87 million in the previous corresponding quarter.

Apart from continuing to squeeze margins and cut costs there is very little else FJB can do, which is probably why its CEO Nash Benjamin said earlier this year that it would need to 'focus our efforts on working with our landlords to reduce rental and other overheads.'

Rental of premises registered $10.32 million in its current reporting quarter, down marginally from $10.6 million a year ago. However, as a proportion of turnover, rentals have increased to about 15 per cent, up from 12 per cent a year ago. This in turn was an increase from 10 per cent in 2007.

FJB is one of the top 10 tenants of Starhill Global Reit which holds stakes in Wisma Atria and Ngee Ann City. The reluctance of landlords to give substantial rental rebates is perhaps best represented by retail rental revenue generated at Wisma Atria of $11.56 million for the quarter ended March 31, down only marginally by 0.8 per cent from a year ago. RSH, which has brands like Zara and Mango, also reported poorer results recently, with net profit contracting by 45.1 per cent to $8.41 million for the quarter ended December 31, 2008. It also reported that its Singapore business saw profit before tax fall by 26 per cent due to higher operating expenses and lower revenue.

RSH spoke out against high rents here recently after several retail associations led by the Singapore Retailers Association publicly asked landlords to cut rents by between 20-30 per cent in February.

BT had reported then that major mall earners were not convinced that occupancy costs were too high. However, RSH responded by saying that every tenant has a level of profitability they have to achieve to sustain their business, and that level varies from retailer to retailer.

There are not many retailers in Singapore that are publicly listed so FJB and RSH's reported financial numbers are a useful barometer of how the entire retail industry is doing as a whole.

Mall owners, on the other hand, still appear to be doing well. Many of Singapore's malls are owned by Reits like CapitaMall Trust, Starhill Global Reit and Frasers Centrepoint Trust. All three Reits reported increases in net property income. One Reit saw this rise by as much as 17 per cent for the current quarter.

Perhaps more interesting is that some are still increasing rents when leases come up for renewal. According to filings by CapitaMall Trust, rents were increased by 6.8 per cent at both Plaza Singapura and Junction 8 compared to preceding rents.

Being publicly listed entities, Reit managers are probably more constrained when it comes to offering rental rebates. However, if the retail industry is doing as badly as numbers show, the Reit managers may have no choice.

As FJB's Mr Benjamin said: 'It's better to lower rents than not have a tenant.'

topsupplier

I agree that singapore retails shops/ pushcarts rents are too high! too much competition n not enough shoppers compared to other countries. A pushcart can be surprisingly the price of renting a normal shop.OMG!

Cocoon

the rental increases are unable to FULLY blame on landlord. As market demands is still on high and new comers are bidding on higher rental. Everyone hoping to get into hot malls. So the pressure is not on the established mall. MAybe only the smaller retail landlord will have some competitiveness when they market the mall. As I previously mentioned, the market will not shrink unless government willing to comes in to assist . However, there are no reason for them to comes in as now in this society , it about Free trade and competiton. So finger cross for all future retailers.

estilofashion

well said..

fusion

I totally agree...it's scary nowadays last time when my aunt rent a shop is $1200 only,this few days when i come across a yellow box rental, it's a freaking $1800!!! Not only that bazaars are getting more expensive for a 3 ft by 3ft i can't believe we got to pay so much nowadays.some event company are really blood suckers there's one i came across whose in charge is cindy or cin dun know wad. she took our money but dun allow us to choose our own booth and place us at those "wu lu' places where the crowd are not there.Her event be it kallang or smu , not able to cover rent at all ='(

FF Fashion

This news article below reads "opportunities for retailers to negotiate for lower rents". The news article above by Arthur Sim reported "major mall earners were not convinced that occupancy costs were too high". And we all stuck in-between


Long-run retail space supply sustainable
May 29, 2009
The Business Times
Kalpana Rashiwala


SOME 5.8 million square feet of new retail space expected to be completed from 2009 until 2013 - the bulk of it this year - will cause temporary oversupply and put downward pressure on rents but will be sustainable in the long run, property consultancy DTZ says in a research alert.

Among other factors, it cites its projection of a slight fall in retail space per capita, assuming Singapore's population grows at the same 2.3 per cent pace it has averaged over the past 10 years.

If the population continues to grow at this rate, total retail space per capita will ease from 10.1 sq ft last year to 10 sq ft by 2013. It eased from 12 sq ft in 1999 to 10.6 sq ft in 2007.

DTZ also reckons leakage of retail spending is not significant. 'Although there is leakage of domestic spending, this is more than made up by an increase in foreigners spending in Singapore,' says the firm's senior director and head of South-east Asian research Chua Chor Hoon.

For example, she notes that although the spending by Singapore visitors to Thailand and Hong Kong rose 36 per cent and 177 per cent respectively between 2003 and 2007, this was not significant at only 3 per cent of total retail sales in Singapore in 2007.

DTZ's figures show 3.3 million sq ft of new retail space will be completed this year, comprising 1.3 million sq ft in the Orchard/Scotts area, 1.7 million sq ft in Other City areas and the rest in the suburbs.

'Occupancy and rents of retail space in 2009 will be under downward pressure, particularly in Orchard/Scotts Road and Other City areas, where the majority of new supply in 2009 will be located,' the firm says. 'There will be opportunities for retailers to negotiate for lower rents or relocate and expand to better premises this year.'

Ms Chua predicts the average first-storey monthly fixed rental value of prime space in Orchard/Scotts roads will ease 7 to 13 per cent for the whole of 2009 and post 'a minus-5 per cent to zero per cent change in 2010'. Last year, the figure initially rose, but the entire gain was given up, to end the year unchanged at $41.80 psf.

DTZ says 2009 will be a challenging year for Orchard/Scotts and Other City areas, as retailers face consumption cutbacks while landlords worry about securing tenants in view of the imminent supply and falling visitor arrivals.

However, beyond 2009, when the US and Singapore economies are expected to recover, the new supply is not excessive, according to DTZ.

It believes the addition of 1.3 million sq ft of shop space in Orchard Road this year will give new retailers the chance to gain a foothold on the local scene.

And it sees the rejuvenation of Singapore's premier shopping belt through new malls, new retail concepts and new brands as vital to maintain the island's status as a world-leading shopping destination.

In Other City areas, DTZ notes that besides the new retail space from projects like Marina Bay Shoppes, the completion of new offices and hotels will mean the ratio of retail space to offices and hotel rooms will fall by 2013. Major sources of shoppers for retailers in these areas are the local working population and guests in nearby hotels.